Two weeks ago, the Central Bank of Nigeria (CBN) directed banks and other financial institutions to shut down accounts associated with cryptocurrency exchanges, creating widespread disruption.
The CBN justified its decision by citing concerns about the anonymity of crypto users and its potential misuse in fraudulent activities—arguments that have faced significant criticism.
However, it’s essential to clarify that the CBN has not outlawed cryptocurrency in Nigeria outright. True prohibition would require blocking crypto exchanges entirely and disabling internet access, which isn’t the case.
Instead, the CBN’s move severed the connection between cryptocurrency exchanges and their users by restricting access to banking and payment systems.
How crypto exchanges are responding
In light of this development, cryptocurrency platforms have begun to share alternative options with their users.
Peer-to-peer (P2P) trading
P2P trading involves direct transactions between individuals without relying on intermediaries like banks or payment processors.
- Crypto P2P: Users who wish to sell crypto can list their offers, while interested buyers can bid through blockchain networks. Though slightly slower than traditional exchange systems, the high volume of crypto transactions ensures minimal delays.
- Naira P2P: Before exchanges gained popularity, crypto buyers and sellers often transacted directly using their bank accounts. With the CBN’s restrictions, some exchanges now facilitate Naira-based P2P trading by verifying participants, reducing the likelihood of fraud.
Although exchanges provide basic safeguards, they cannot completely eliminate risks. As a result, transactions will avoid explicitly mentioning cryptocurrency in bank transfer descriptions to comply with restrictions.
Alternative currencies
Since the ban primarily affects Naira-based transactions, exchanges are introducing options for trading in other currencies.
- US Dollar: Platforms like Quidax now allow users to trade cryptocurrencies using US dollars, which are unaffected by the CBN’s directive. However, this option is most suitable for users with foreign accounts, as Nigerian domiciliary accounts remain under CBN oversight.
- Stablecoins: These are cryptocurrencies designed to have minimal volatility, often pegged to traditional currencies like the US dollar. For example:
- NGNT (Naira Token): A stablecoin created by BuyCoins, pegged to the Naira and backed by USDC, a regulated digital dollar issued in the US.
- NGNT provides an intermediary step between fiat and cryptocurrency, ensuring users can transition smoothly despite restrictions.
While stablecoins offer an effective workaround, challenges remain in enabling users to buy or sell them without regulatory interference. Additionally, their long-term stability warrants close observation.
Expansion into other African markets
Exchanges such as Quidax and Bundle have announced plans to broaden their reach to other African countries. Diversifying their operations minimizes the risks of depending solely on the Nigerian market while tapping into growing crypto adoption across the continent.
What lies ahead?
These adaptive measures—P2P trading, alternative currencies, and market expansion—highlight the resilience of Nigeria’s crypto industry. While platforms adjust to the new landscape, many are still strategizing and awaiting potential policy reversals.
In the meantime, the situation could drive innovation in the sector, leading to new products and increasing the use of cryptocurrency for direct transactions—like Tesla’s acceptance of Bitcoin for vehicle purchases.
Nigeria’s crypto journey continues to evolve, with exchanges and users alike finding ways to stay ahead in an ever-changing regulatory environment.
